Why Exxon Mobil Earnings Tumbled 38%

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Exxon Mobil Corp. (NYSE: XOM) reported estimated third-quarter 2016 results before markets opened Friday. The integrated oil and gas giant posted quarterly diluted earnings per share (EPS) of $0.63 on revenues of $58.68 billion. In the same period a year ago, the company reported EPS of $1.01 on revenues of $67.34 billion. Third-quarter results also compare to the consensus estimates for EPS of $0.58 on revenues of $61.34 billion.

Third-quarter profits declined by 38%, from $4.19 billion in the year-ago quarter to $2.65 billion. In the U.S. upstream division, the net loss increased from $442 million in the third quarter of last year to $477 million. Net profit in Exxon’s international upstream business declined sharply from $1.8 billion a year ago to $1.1 billion. Lower liquids and gas realizations decreased earnings by $880 million, while volume and mix effects increased earnings by $80 million. All other items, including lower expenses partly offset by unfavorable foreign exchange effects, increased earnings by $60 million.

In the downstream division, earnings tumbled from $2.03 billion to $1.23 billion. Weaker margins, mainly in refining, decreased earnings by $1.6 billion while favorable volume and mix effects increased earnings by $170 million. All other items increased earnings by $580 million, including lower maintenance expenses and gains from divestments in Canada.

Liquids production in the quarter decreased by 120,000 barrels a day to 2.21 million barrels a day. U.S. production rose by 16,000 barrels a day to 484,000 barrels. Natural gas production increased by 77 million cubic feet per day year-over-year to 9.6 billion cubic feet. U.S. natural gas production fell by 36 million cubic feet per day to 3.06 billion cubic feet.

Capital spending totaled $4.19 billion in the third quarter, compared with $7.67 billion in the third quarter of last year. U.S. upstream spending was cut by more than half, from $1.99 billion to $712 million, and total upstream capex fell from $6.37 billion a year ago to $3.07 billion.

Exxon did not report any share repurchases in the second quarter. The company paid dividends totaling $3.1 million in the quarter.

Rex Tillerson, Exxon’s chairman and CEO, said:

ExxonMobil’s integrated business continues to deliver solid results. While the operating environment remains challenging, the company continues to focus on capturing efficiencies, advancing strategic investments, and creating long-term shareholder value.

The company did not provide guidance in its press release, but analysts are expecting fourth-quarter EPS of $0.71 on revenues of $67.5 billion, compared with EPS of $0.67 and revenues of $59.81 billion in the fourth quarter of 2015. For the full year, analysts are looking for EPS of $2.18 on revenues of $237.93 billion.

Exxon’s shares traded down about 0.9% in Friday’s premarket to $86.12, in a 52-week range of $71.55 to $95.55. Analysts had a 12-month price target of $89.50 before this latest report.